AN UNPLEASANT O.S.C. HEARING FOR WEIZHEN TANG
IN MID-NOVEMBER, 2009
By Allan Gould,
journalist and author;
November 24, 2009
The Ontario Securities Commission (O.S.C.) has dozens of hearings each year, but one of the more intriguing ones took place on November 13, 2009: with the lengthy title of “IN THE MATTER OF OVERSEA CHINESE FUND LIMITED PARTNERSHIP, WEIZHEN TANG AND ASSOCIATES INC., WEIZHEN TANG CORP. AND WEIZHEN TANG,” its purpose was to discuss the request of Tang to drop the cease trading order which had been imposed on him over a half-year earlier, in response to the charges made against him by a handful of disgruntled clients.
What made this case so fascinating in the minds of those who are following the legal proceedings against Weizhen Tang, was that 42 of his investors who were unable to receive their money back when they requested it in January, 2009, had actually signed affidavits which urged the O.S.C. to allow Tang to renew his trading on their behalf. This was shocking to many: after all, when multi-billionaire crook and jailbird Bernard Madoff was discovered running the largest Ponzi scheme in world history last year, one could not imagine even one of his hundreds of victims asking the U.S. Securities and Exchange Commission to allow the soon-to-be-jailed (for 150 years!) criminal to resume trading for them! Yet here was Weizhen Tang, the Chinese-born Canadian investor, being begged to trade again.
The morning of November 13, 2009, dawned cool and damp, but about two dozen mostly young and Chinese-Canadian men and women poured into the 17th floor hearing room of the Ontario Securities Commission on Queen Street West in downtown Toronto, just steps away from the famous Eaton Centre. The majority of the visitors appeared to be from the press, one of the most prominent being an on-screen reporter from the local Global News channel, which would run a lengthy five-minute item on the hearing that same evening on their 6 p.m. newscast.
Shortly after the announced starting time of 9:30 a.m., the smallish audience leapt up out of respect as the Chair of the O.S.C., James E.A. Turner, and its Commissioner, David L. Knight, entered the handsome courtroom. Weizhen Tang, his competent and soft-spoken lawyer L.J. Cuddy, and Hugh Craig and Matthew Boswell, two litigation counsels with the staff of the enforcement branch of the Ontario Securities Commission, along with Jeff Thomson, the senior investigator, had all long been in the room, awaiting the two men who would judge Tang and his companies.
Craig, a heavy-set, bright, middle-aged man, rose to his feet and replied to the first words from the Chair, who had opened the hearing by asking, “I take it staff is requesting an extension of the cease trade?” “Correct,” the litigation counsel declared. “As set out in our motion materials for the hearing returnable on April the 1st, 2009, staff is opposing the motion brought on behalf of Mr. Tang and his companies which was filed before the Commission on or about October the 21st, 2009.”
And so it went for the next three hours, with three short, 20-minute breaks, the last one dedicated to the two judges deciding on the merits of the request by Tang and his lawyer to reverse the cease trade order. It was hardly a thrilling case—there were no Inherit the Wind or dramatic, television-like moments, but there was much sarcasm and condescension on the part of litigation counsel Craig, whose distaste for Weizhen Tang was obvious and often mean-spirited. After Hugh Craig expressed his desire to see the Tang request rejected, the latter’s tall, attractive and soft-spoken lawyer, Loftus Cuddy, stood up and calmly laid out his hopes and concerns:
Mr. Tang is seeking today to carve out an exception of the
cease trade order whereby he can trade in currencies on
behalf of a number of named consenting investors who have
evidenced their consent by executing consent forms, some
of which have been filed and a further number of which
I’m seeking to file today. . . .
Some 40 investors, we hope to demonstrate to the
Commission today, being fully aware of Mr. Tang’s
track record, his charges he faces, the risks they face,
are voluntarily asking without inducement or threat that
the Commission permit Mr. Tang to trade on their
behalf, only on their behalf, under the supervision of
a portfolio manager.
Lofton Cuddy then noted that his client Tang would “be called upon to despond to in the Ontario Court of Justice in April and thereafter in 2010,” but that having Weizhen Tang be cross-examined at this point in the young hearing would be helpful, recognizing that “his oral testimony today will result in some admissions which will be of interest and relevance to the [planned] Ontario court proceeding” a full six-months later. And so he was.
People who watch and enjoy “lawyer shows” on television are rarely aware of just how complex and paper-filled even the slightest case can be: lawyer Cuddy pointed out that there were already 13,000 documents filed regarding Weizhen Tang’s case, which drew audible gasps from several in the viewers section of the Toronto courtroom on November 13, 2009.
It was now time for Tang, the hero/villain of the case (depending upon one’s point of view), to be cross-examined. After the slightly-built, slim, handsome 50-year-old was sworn in, wearing a dark suit and modest tie, the O.S.C.’s counsel began his strong and challenging questioning. Craig was forceful as he read from the fourth paragraph of the document signed by over three dozen of Tang’s clients, requesting that his trading privileges be returned to him: “I am aware that Mr. Tang currently faces charges, including a charge of fraud before the Ontario Securities Commission, and that he has been ordered not to engage in trading. I cannot wait for the pending of the outcome of these charges in 2010.” “Who created that paragraph?” queried Craig of Tang, still under oath. “It is the investor’s desire and expressed to me. . . . The same people want it and then I put it on the authorization, and they like it. That’s why I do everything according to investors’ will and interest.” The O.S.C.’s Craig then challenged Tang further, demanding to know if the clients who signed these documents (requesting that Tang be allowed to trade for them once more) were actually aware of all twelve charges against him, since the signed sheets read, “are all aware of the charges which have been brought against me by the OSC.”
Tang answered with vigor: “From the newspapers, everybody knows there are twelve charges; it’s well publicized. They say it’s fraud. I say, I’m doing business, nothing fraudulent. . . . I sent the authorization form to let them know. I didn’t ask anyone to sign anything, but they voluntarily like the idea and they support me, and I got enormous support—40 people.”
As the cross-examination continued, Tang declared with passion, “This is a very serious thing. There’s tens of millions of dollars involved, hundreds of people involved. So we have to work to make money to make their ends meet. There are lots of investors suffering because of the OSC investigation.” A few exchanges later, Tang exclaimed, “I will show people how I trade, with the supervision of OSC or a professional portfolio manager.” Some time later, the accused declared, “I needed to make 1 per cent a week to satisfy the need of investors. Since 1995, when I traded mutual funds for people, I made 1 per cent a week.”
The O.S.C.’s Craig was persistent and harsh. He challenged Tang on when his clients began to withdraw their money from his accounts, and when it was that the often-charmed investor was unable to “meet their requests” for withdrawal. “People were scared,” admitted Tang. “There was the Madoff case, so people withdrew their money” in the dying weeks of 2008. Tang insisted that he did “not lose money as other professionals had done,” and that he often did “much better than everyone else” in the marketplace. But, as Tang put it to Craig, “investors began to seek withdrawals of funds they had entrusted to me to invest on their behalf,” and he “was not able to pay back all the requested redemptions.”
Weizhen Tang claimed that he had a “unique system” in which 99% of his clients’ monies were “preserved,” but “when the market went crazy—the financial tsunami of 2008—the people took their money and kept it in their own banks.” Fifteen million, possibly thirty million, of his clients’ money was apparently lost during those difficult weeks. “That’s why we seek the right to trade,” Tang exclaimed, “in order to pay people back. People know that I can make money”—presumably in a sane, stable market which would be unlike those terrifying months in the second half of 2008. He proudly declared to Craig and the court, “I have to be there [that is, back in the market, trading]. Otherwise, I would not have 40 investors supporting me if I cannot make money, right?” When Craig went in for the kill once more (“You say that nobody at this meeting on October 25th, 2009 at the Double Happiness Restaurant in Markham was coerced in any way to sign these authorizations?”), Tang shot back, “We don’t need to coerce anybody. “We have no power to coerce anybody at this stage!”
After a brief recess, Tang’s lawyer Loftus Cuddy took up the cross-examination of his own client, and was understandably more sympathetic. One of Tang’s clients, a Mr. Lin, “believes that you may have hidden money or taken money from your investors. Can you comment on that?” Tang smiled warmly and replied, “There is no money taken by me or hiding anywhere,” he exclaimed. Not that Cuddy did not challenge his client: “Mr. Tang, on what do you base your confidence that you can make your investors’ money back?” Tang’s answer is worth quoting at length:
“You know, I made a lot of money before for investors.
I have had lots of success before for investors. For
example, in 1995, I made hundreds of people profit, and
hundreds of investors made money. Yesterday, someone
called me and said that I made more money for them
than they made in their whole life. Since then, I traded
currencies. Yes, I lost money on stocks, and everybody
loses money in stocks. I traded currencies, and had
phenomenal returns. In September of 2009, I turned $1-
million into $3.63 million in mere weeks, in ‘practice accounting,’ [since he is unable to trade now.] I made 100 per cent a week, and nobody can demonstrate that in real time to the public. Nobody has done this before. . . . If the O.S.C. did not stop me from trading, everybody would be much happier.
At this point, the two sides made their submissions to the court. Tang’s lawyer, Loftus Cuddy, was clear as a bell: “This is a motion about 42 investors who wish for Mr. Tang to trade on their behalf, and it is respectfully suggested that the purposes of the function of the Ontario Securities Commission as set out in the legislation will be entirely fulfilled and complied with, would Mr. Tang be permitted to trade under the circumscribed conditions that have been proposed. . . . If you have an accredited compliance officer and portfolio manager in place, the supervision of the O.S.C., then the likelihood of future harm is rendered nil. It’s rendered negligible. These investors say that they respect the OSC’s mandate to impose cease trade orders in the public interest, yet they are respectfully requesting that that mandate not apply to them. These particular investors say, we will take the risk. We want Mr. Tang to trade on our behalf. . . .”
Hugh Craig was equally strong in his demands: “The authority of the Commission is to issue and extend temporary cease trade orders is directly related to its goal of protecting investors. We recognize that issuing a cease trade order is an extraordinary remedy and one which should not be exercised lightly. Where, however, there is credible evidence of harm to investors, the Commission must be able to act to prevent further harm.” Craig concluded by urging that “the existing temporary issued on March 17th, 2009 be extended until the end of the proceedings at Old City Hall [between April and June, 2010].” Cuddy was invited to reply, at which point he jumped to the defense of his client, Weizhen Tang: “I didn’t hear any evidence nor is there any evidence before you that there’s clear evidence of fraud.” The Chair called for a 20 minute break.
As the visitors’ gallery rushed out, they gathered around Tang and his lawyer Cuddy, who requested that they all step outside on the street (near Queen and Bay, in the shadow of the Old City Hall, where the eventual case would take place against Weizhen Tang in half a year). As the digital cameras clicked away and videotape cameras whirred, Cuddy surprised some of the reporters by declaring that “My client will probably lose his request today for the right to trade again.” Most were taken aback: are not lawyers supposed to be positive and hopeful? “Why are you saying that, Mr. Cuddy?” several called out, in astonishment. “Look at the amount of time we’ve been told to leave the courtroom—for much less than half an hour! No major decision in favour of a client could be made in so few minutes. I do not expect that we will win today.” A few more questions were thrown at Mr. Tang (including a rather shocking “Is it true that if you visited China now, you would be a dead man?” from a Global TV reporter), at which point everyone returned to the 17th floor courtroom.
Loftus Cuddy would be proven correct within moments after the court resumed at 12:27 on the afternoon of November 13, 2009. Chair James Turner and Commissioner David Knight returned to the room (with all the reporters and visitors once again coming to their feet out of respect), announcing their decision within seconds:
The allegations against Mr. Tang in this matter are very
serious. He has acknowledged to staff that he failed to
disclose investment losses to investors. He made statements
in which he significantly inflated the value of Oversea’s
assets under management. He has made representations
through his website or otherwise that appear to be
untrue, and all investor funds have been dissipated
such that no money is left.
Staff alleges that Oversea Chinese Fund LP
is a Ponzi scheme and that investor redemptions
were paid from the investments made by others.
It appears as if as much as $30 million has been lost
by investors as a result of Mr. Tang’s activities.
While these allegations by staff have not yet
been proven, they are very serious and a number
of them have been admitted by Mr. Tang.
We are very sympathetic to the fact that
investors appear to have lost their investment in
Oversea. We understand why investors would hope
to recoup that investment. If the investors wish to
trade further, there are other ways for them to do so.
However, where there is credible evidence of harm to
investors in our capital markets, the Commission must
act to prevent further harm to existing or new investors. . . .
Not only has Mr. Tang failed to satisfy us that the
cease trade order should be varied, but his affidavit filed
in support of his motion and the investor consents he
relies on, assist us in concluding that we must continue
the cease trade order to protect the public interest.
Accordingly, the application is dismissed. The
temporary cease trade order is extended to June 30, 2010.
The hearing was adjourned at 12:32 p.m., and with it went the hopes of three-and-a-half dozen men and women, all clients of Weizhen Tang, who had hoped that their often-successful trader and friend could start trading again on their behalf at once. Tang had promised them all, in several emails and in person, that he would do everything possible to return their money, with interest, but his hands remained tied by the Ontario Securities Commission. What would happen now? END